Conference report: 7 February 2012

What post-crisis changes does the economics discipline need? Are graduate economists fit for purpose?

Report by Ashley Lait, the Economics Network
Published February 2012

On the 7 February, the Government Economic Service and the Bank of England hosted an event which explored economics teaching and learning in UK universities in the wake of the financial crisis. In particular, the discussion focused on the challenges faced by higher education institutions and the changes they need to implement in order to produce economics graduates who are fit for purpose. This article will lay out some of the conclusions from the panels and subsequent discussions.

Firstly, the lessons that need to be learnt from the crisis were addressed. The importance of basic principles was emphasised and it was felt that despite their centrality to the discipline, they have at times been overlooked. This risks students being unaware of the core of their subject upon which more specialised modules build. It was therefore agreed that these basic principles must be implicit in the teaching of economics throughout students’ degree programmes.

The question of the development of macroeconomics as a discipline and of macroeconomics curricula was discussed by a number of speakers. There was consensus that the macroeconomics curriculum needs to integrate economics and finance more closely and include the impact of the development of financial instruments and the role of balance sheets. Existing macro models typically assumed well functioning markets and too little attention had been paid to leverage, global imbalances, the lack of macro prudential policies and the instability of the system as a whole. There was debate as to whether DSGE models could be adapted in the undergraduate curricula to take account of the functioning of financial markets and the behaviour market participants, whether new models should be incorporated or whether students should be presented with a range of models that could be tested against the evidence.

Furthermore, in the light of the financial crisis, there is a sense that economics graduates would benefit if economic history and the development of economic thought were returned to the curriculum. This would help students not only to learn from the mistakes of the past, but also to see the development of theories over time. With an understanding of how the discipline has changed, students are more likely to question current assumptions and learn to accept the limitations of accepted models, which in turn will lead to more innovative thinking.

A number of the other lessons that must be learnt if universities hope to produce graduates who are prepared for the work place are perhaps not directly related to the financial crisis, but with growing competition for jobs, they are increasingly important. Employers are asking for graduates who are not only knowledgeable about their subject, but also have the more general skills required to be effective employees. These include strong communication skills, IT literacy and the ability to analyse and explain complex ideas to non-economists, a skill that is vital for economics graduates, especially as many will go into careers which require them to have a wider skill set beyond mathematical and econometric competence.

It is important to note that the financial crisis coincided with other drastic global changes, which courses in UK universities must also take into account. Perhaps most important of these is the opening of financial borders and the expansion of networks across the globe. The conference highlighted the need for techniques, understanding and models that are adapted to the international nature of twenty-first century financial systems. In addition, the rise of economic powers such as India and China have changed the shape of the global economy and thus their impact, including on the UK, must be explored in undergraduate teaching. And lastly, the development and expansion of the use of social media and the Internet has had a profound impact on society and how we research and learn, and universities must catch up with this as they teach new generations of economists.

Each of these changes is indicative of a world that is opening up, and the economists present at the conference felt that the discipline of economics needed to do the same. The ‘LSE 100’ course at the London School of Economics is an interesting example to consider. This is a compulsory course for all LSE students and it tackles the big questions of the twenty-first century, including the financial crisis, climate change, culture and poverty. It is designed to improve students’ skills set and their ability to analyse critically and develop reasoned conclusions. One of the innovative aspects of this course is that it is taught by a range of specialists and therefore adopts a general social science approach, allowing students to learn from the theories, methodologies, research and skills of a range of disciplines. It was widely agreed that at present the economics discipline is too compartmentalised and needs to learn from other subject areas. Furthermore, if students are exposed to other social science approaches, they will be better able to think critically about their own subject and therefore develop new and innovative thinking.

Whilst much of the discussion focused on areas of improvement for the discipline and the lessons that economics departments must learn, it was agreed that there have been benefits to the subject from the financial crisis. Above all, there is huge interest in economics among young people as they attempt to understand the issues that are in the news daily and have even been the subject of Hollywood films. Although it is negative press, it is important that educators seize the opportunity to encourage a new generation to study economics. This has great potential for the discipline too as, in the light of the crisis and in an increasingly globalised world, this generation will look at economic problems through a new lens and will be ready to reject assumptions and innovate. As a result, it is vital that courses are up to date, relevant and exciting and above all relate to what is going on in the outside world.

The important question now is how to implement these changes and suggestions into economics courses across the country. This represents a significant challenge for universities; it is easy to list what should be integrated into course, but much harder to decide what should be left out. There were suggestions for a mixed market of courses, where some could have a greater focus on mathematical economics, while others would concentrate more on political economy. It was agreed that a network was needed to serve as a forum for discussion on these issues and to disseminate the results and ideas. Above all, this network and the economists who engage in teaching need to be innovative and inspiring in order to carry the discipline forward and to produce high quality and work-ready graduates.